People LOVE to talk about revenues. The numbers are big, impressive and easy to fixate on. But when was the last time you heard someone bragging about growing their margins or improving business efficiency?

These metrics aren't nearly as sexy, but they're immensely important. As the saying goes, “It doesn't matter how much you make. It matters how much you keep.” With that mantra in mind, here are three highly-effective and unintuitive strategies to improve your business's bottom line.

Raise Your Prices

Raising prices is a terrifying prospect. As entrepreneurs, we assume that customers will abandon us, sales will dry up and our business will collapse into the dust-heap of failure. But like most fears, we tend to grossly overexaggerate the consequences and underestimate the benefits. Especially if you're reselling an existing product in your ecommerce store, a small increase in price can do miracles for your bottom line.

Imagine the following scenario for a popular item in your online store:

Item Retail Cost: $100

Wholesale Cost: $80

Profit: $20

Profit Margin: 25% ($20 profit / $80 cost)

Now image that, after being inspired by an article on the Shopify blog, you re-priced this item at $110:

Under the best-case circumstances – assuming you have a strong unique selling proposition and aren't competing on price – your conversion rates won't dive and you'll have achieved an instant 50% increase in your overall profits. Even with a significant 30% drop in conversions, you'd still be making more money than under your old pricing model, but with fewer customer servicing costs to consider.

I successfully used this approach with my own ecommerce store to instantly increase my bottom line by 25%. It was, bar none, the most effective technique I've ever used to increase profitability.

When implementing this strategy, keep the following in mind: Make sure you test different pricing levels. While raising prices is often very effective, you'll need to confirm it for your market/business.

If you have a large catalog, testing pricing on thousands of products can be a tall task. Start out testing pricing on only your best-selling products instead.

This strategy relies on having a unique selling proposition and offering value to your customers. The more price-sensitive your customers, the less effective this will be. If you don't have a unique selling proposition, you need to get one.

Don't Obsess About Per-Order Profits

Many businesses are unwilling to lose money on an order, even if that means ending the relationship with an unhappy or dissatisfied customer. You may have had a similar experience, which often goes something like this:

“I'm sorry, sir. We only made $X on your purchase, so if we (fill in your reasonable request here), we'd lose money on your business. I hope you understand.”

This is a penny-wise but pound-foolish approach, and a terrible way to do business in today's highly social and connected world. If you're not consistently losing money on orders to quickly and pro-actively resolve customer problems, you're missing out on the chance to improve your bottom line.

Customers are so accustomed to mediocre service that when a business goes out of its way to proactively resolve a problem – without charging them – they're blown away. Apart from the life-long value of that customer, you'll receive valuable referral marketing and recommendations that are impossible to purchase.

If you're running an ecommerce store, here are four ways you can invest in the future of your business and, ultimately, your long-term bottom line:

Did something inexpensive break? Ship customers a free replacement immediately without requiring them to hassle with the return.

If an expensive item needs to be returned, ship them a replacement as soon as they submit tracking confirmation of the return, instead of waiting until it hits your warehouse.

If a long-time customer needs something ASAP, overnight it to them at no charge.

If a customer wasn’t happy with a purchase, proactively issue a partial refund to help compensate him for the disappointment.

Serving customers like this will cost a bit more in the short term, but will pay incredible dividends as you build a loyal and highly vocal fan base that results in a very healthy bottom line.

Reconsider Offering Phone Support

Would you be willing to reduce your workload by 50% if it meant only giving up 15% of your business? I would, and did, when I stopped advertising my toll-free sales number on one of my sites.

We were able to take the savings – both in terms of time and money – and pour them into better serving our online customers and improving our site. While phone support is a rarity among many online businesses, it seems that a disproportionate number of ecommerce merchants still feel it's necessary.

After the previous section, which championed outstanding customer support, this may seem like a major contradiction. But great customer service doesn't mean being all things to all people. It simply means taking outstanding care of the customers you've chosen to do business with. Based on your product and market – especially if your price point is lower - offering phone sales support may or may not be a wise use of your time.

Try measuring the impact removing your phone number has on conversions. You'll likely be surprised that the vast majority of people simply order online. If you do decide to offer a sales line, try to place it in strategic places such on the “Contact Us” page or in the shopping cart, where only qualified prospects will see it. If you serve both individuals and businesses, you can also experiment with a business-only phone line.

If you decide to scale back your phone support, make sure to:

Be honest with customers and let them know WHY you don't list a telephone number. Tell them you prefer to invest in a quality website and outstanding customer service for your existing clients.

Ensure you have a highly detailed, informative website to answer customers' questions.

Have fantastic email support if customers can't reach you easily via phone. Using a help desk like Desk.com, Helpjuice, Zendesk, or Kayako will ensure that your email correspondence is top-notch, and that requests don't go unanswered.

Also, don't write off the phone entirely. If a customer requests a call back, or if you need to resolve issues that require personal attention, make sure to pick up the phone.

The Biggest Danger Is Inaction

Change is always scary, and you may be reluctant to implement these suggestions for fear of what might happen to your business. But experimenting with these ideas will likely go unnoticed by most of your customers, especially those new to your business. If the changes aren't beneficial, you can always revert back to your old policies and pricing.

Without taking action, you'll never know how much money could be added to your bottom line.

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12 comments

Dan Auns

October 04 2012, 10:59AM

There are only 2 real ways to grow any business.

- Increase sales.
- Reduce costs.

The 3 points raised here, fall into one or both of these buckets. The clarity gained when a business learns to correctly balance sales and costs, is called profitability.

Andrew Youderian

October 04 2012, 11:05AM

Very true, Dan. But I think some cost reducing measures as more effective than others. For example, being selective about how you offer phone support and gutting your investment in quality employees both can save you money, but the latter option will be much more likely to result in long-term problems.

So it’s not just about reducing costs, but identifying ways to do it smartly and efficiently without hurting the long-term prospects of the business.

Dan Auns

October 04 2012, 11:28AM

100% agreed, there are effective ways to reduce costs and increase sales ……..and ways that might end up simply choking it out.

Posts like this, that inspire a data driven decision making process – are awesome. Deep down inside of me, I always have to have some sort of quantitative rationale to support any of my eCom decisions. Each of your 3 points are fundamentally supported by data. And that’s rad.

When quantitative business decisions in retail are made, they are almost often made measuring $$’s. Earn more, spend less. Repeat. :)

Jeff Bronson

October 04 2012, 04:57PM

These are all valid points. Per the 800# decision, in your case it worked out fantastic. I think many clients though, still get a “warm and fuzzy feeling” seeing a prominent 800# listed. It’s that one extra assurance there is someone to contact if needed.

But, in your case, the data supported doing this!

Andrew Youderian

October 04 2012, 05:42PM

Agreed – I strongly recommend testing this, and making sure it matches your market and strategy. I own a site that sells high-end goods with a $1,000 price point, and pulling down our phone number there would be a very poor decision. People need more support / re-assurance when ordering expensive goods online.

But if your price point is lower, it definitely makes sense to experiment with using the phones most efficiently. When done right, it frees up more resources to pour back into creating an amazing website and solving legitimate problems that do crop up for existing customers.

The reason it’s done this way is that it makes it very easy to estimate your profitability knowing just the top-line sales figure.

For example, if a business has sales of $1M and gross margin of 22%, then the gross profit is 220K.

James

October 06 2012, 11:44AM

Great post on all points, especially the overall concept of being open to change and running the experiments— whatever they may be.

I agree with Fred, Gross Margin = Gross Profit/Gross Revenue

Andrew Youderian

October 10 2012, 12:55PM

@Fred Great catch – you’re right. In my attempt to convey how much leverage a price increase gives you, I mislabeled Profit Margin. Instead, I should have called it the markup margin or something similar. Thanks for pointing out my mistake.

@James – Thanks! Experimentation is one of the easiest ways to create massive change quickly in your business.

Josh

June 09 2013, 09:05AM

I understand the macro logic of not focusing on per item profit, however, if you sell a variety of different items, it’s good to know what’s costing you too much versus the return.

Does anyone know of any accounting or reporting services that let you report on per item sales, expenses and profit? Right now we have excel and have something like: